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The latest update on business sentiment pointed to resilience in activity and easing inflation pressures.
Key results (seasonally adjusted)
- General business confidence: -10.2 (Previous: -49.0)
- Trading activity, past three months: 6.3 Previous: -16.8)
- Trading activity, next three months: 4.9 (Previous: -12.1)
- % of businesses reporting a rise in operating costs over the past 3 months: 54.5 (Previous: 66.3)
- % of business who increased output prices over the past 3 months: 38.8 (Previous: 55.8)
The NZIER’s latest update on business conditions pointed to a Goldilocks combination of economic conditions at the start of 2024. Trading activity has been resilient and businesses are looking to take on staff. At the same time, the strong inflation pressures that have been buffeting the economy are easing.
On the activity front, businesses have reported a pick-up in trading activity through the final months of 2023. That includes a sizeable rise in manufacturing activity and retail sales, as well as gains in other sectors.
Businesses are also feeling more optimistic about the outlook for trading conditions over the coming months, though the survey is still pointing to modest growth. Conditions are mixed across the economy however. Balanced against firmer activity in sectors like retail, there is expected to be continued softness in areas like construction.
One reason for the firming in business sentiment may have been the change in government, with the new centre-right coalition expected to be much more business friendly. At the same time, many businesses will likely have welcomed the gradual easing in inflation and the related expectation that the interest rate tightening cycle has come to a close.
At the same time, there has been a sharp rise in the number of businesses who are planning on taking on staff in the new year. That comes at the same time as record levels of net migration have made it much easier for businesses to find staff with the skills they’ve been looking for. There’s also been a sharp fall in employee turnover – as economic growth has slowed, increasing numbers of workers who are currently in employment are choosing to stay put. Combined, those conditions likely point to an easing in wage growth over the year ahead.
On the inflation front, today’s survey still pointed to strong price and cost pressures, consistent with inflation lingering above 3% for some time yet. However, while still strong, those inflation pressures are dropping back. There’s also been a related lift in profitability.
As with other parts of today’s survey, inflation pressures have been mixed across industries – retailers and those in the services sector are still reporting strong pressure on input costs and output prices. In contrast, some gauges of construction cost pressures (which drove much of the strength in domestic inflation over the past year) have fallen to low levels.
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